Covid-19: Foreign remittances decline as wages fall - WB

Wednesday May 6 2020

The World Bank (WB) alarm follows the downward revision of remittance inflows by Bank of Uganda due to the Covid-19 pandemic. FILE PHOTO

In Summary

Studies show that remittances alleviate poverty in lower and middle income countries, improve nutritional outcomes, are associated with higher spending on education, and reduce child labour in disadvantaged households.

A fall in remittances affected families’ ability to spend on these areas as more of their finances will be directed to solve food shortages and immediate livelihoods needs.

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By MARTIN LUTHER OKETCH

Uganda and the rest of African countries will see a sharp decline in remittances from their relatives living in the USA, Europe and other parts of the world due to coronavirus crisis.

The World Bank (WB) alarm follows the downward revision of remittance inflows by Bank of Uganda due to the Covid-19 pandemic.

The WB in April 2020 warned in the Migration and Development Brief 32, that global remittances are projected to decline by about 20 per cent in 2020 due to the economic crisis.

The WB says this is largely due to a fall in the wages and employment of migrant workers, who tend to be more vulnerable to loss of employment and wages during an economic crisis in a host country.

“Remittance flows are expected to fall across all World Bank Group regions, most notably in Europe and Central Asia (27.5 per cent), followed by sub-Saharan Africa (23.1 per cent), South Asia (22.1 per cent), the Middle East and North Africa (19.6 per cent), Latin America and the Caribbean (19.3 per cent), and East Asia and the Pacific (13 per cent),” the WB said.

The bank said in 2019, remittance flows to Low-Income Countries (LMICs) became larger than Foreign Direct Investment (FDI), an important milestone for monitoring resource flows to developing countries like Uganda.

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It explains that remittances to low and middle-income countries are projected to fall from about $550b to $445b, representing a loss of a crucial financing lifeline for many vulnerable households.

Unlike in the previous years, the WB estimates that in 2021 remittances to LMICs will recover and rise by 5.6 per cent to $470 billion. The outlook for remittance remains as uncertain after the impact of Covid-19 on the outlook for global growth.

The Bank explains that the decline in remittance flows in 2020 come after remittances to LMICs reached a record $554b in 2019.

Even with the decline, remittance flows are expected to become even more important as a source of external financing for LMICs as the fall in foreign direct investment is expected to be larger (more than 35 per cent).

The Bank said remittances to the sub-Saharan Africa registered a small decline of 0.5 per cent to $48 billion in 2019. Due to the Covid-19 crisis, remittance flows to the region are expected to decline by 23.1 per cent to reach $37b in 2020, while recovery of 4 per cent is expected in 2021.

The decline is attributed to a combination of factors driven by the coronavirus outbreak in key destinations where African migrants reside including in the EU, the United States, the Middle East, and China.

These large economies host a large share of sub-Saharan African migrants and combined, are a source of close to a quarter of total remittances sent to the region. In addition to the pandemic’s impact, many countries in the Eastern Africa are experiencing a severe outbreak of desert locusts attacking crops and threatening the food supply for people in the region.

Remittance costs in sub-Saharan Africa: the sending $200 remittances to the region cost 8.9 per cent on average in the first quarter of 2020, a modest decrease compared with the average cost of 9.25 per cent a year before.

The most expensive corridors are observed mainly in the Southern African region, with costs as high as 20 per cent. At the other end of the spectrum, the less expensive corridors had average costs of less than 3.6 per cent.

The global average cost of sending $200 remains high at 6.8 per cent in the first quarter of 2020, only slightly below the previous year.

Sub-Saharan Africa continued to have the highest average cost; at about 9 per cent, yet intra-regional migrants in sub-Saharan Africa comprise over two-thirds of all international migration from the region.

Studies show that remittances alleviate poverty in lower and middle income countries, improve nutritional outcomes, are associated with higher spending on education, and reduce child labour in disadvantaged households.

A fall in remittances affected families’ ability to spend on these areas as more of their finances will be directed to solve food shortages and immediate livelihoods needs.

“Remittances are a vital source of income for developing countries. The ongoing economic recession caused by Covid-19 is taking a severe toll on the ability to send money home and makes it all the more vital that we shorten the time to recovery for advanced economies,” said World Bank Group President David Malpass.

He added: “Remittances help families afford food, healthcare, and basic needs. As the World Bank Group implements fast, broad action to support countries, we are working to keep remittance channels open and safeguard the poorest communities’ access to these most basic needs.”

He explained that the World Bank is assisting member states in monitoring the flow of remittances through various channels, the costs and convenience of sending money, and regulations to protect financial integrity that affects remittance flows. It is working with the G20 countries and the global community to reduce remittance costs and improve financial inclusion for the poor.

Bank of Uganda

The Bank of Uganda said in its highlights of monetary policy report April that the projections regarding remittances to Uganda in 2017/2018 the country received $1.252b, in 2018/2019 it was $1.369 billion, in 2019/2020 before the COVID-19 pandemic it was projected that Uganda would receive $1.153 billion and in 2020/2021 it was projected reach $1.193 billion.